American Eagle founders

PITTSBURGH – High school student Mike Davis recently walked out of an American Eagle Outfitters store empty-handed after finding nothing new to add to his wardrobe of boot-cut jeans, cargo shorts, screen T-shirts and polo shirts.

“I pretty much had everything. That’s the problem,” said Davis, 17.

Just a few seasons ago, teens were flocking to American Eagle Outfitters for their fashion fixes, helping the company’s stock rise above $40 a share. But after several seasons of fashion missteps and disappointing back-to-school sales this year, the Warrendale, Pa.-based retailer is struggling to stay in favor with 16-to-24-year-olds. And its stock is now trading around $17.

Specialty stores like American Eagle and Abercrombie &Fitch were hurt by a spotty back-to-school sale season as teens gravitated toward lower-priced stores for casual basics or themed stores such as skate shops for unique apparel.

With most of its 727 stores in America based in malls, American Eagle – which also operates 111 Bluenotes/Thriftys stores in Canada – reported a 10.4 percent decrease in same-store sales for the month of August and a 3 percent drop in September.

Same-store sales for 2003 are down 6.4 percent at American Eagle and 7 percent at Abercrombie &Fitch. Same-store sales, those from outlets open at least a year, are the industry standard for how well a retailer is performing.

“It would be fair to say we’ve been disappointed with our results thus far,” said American Eagle’s chief financial officer, Laura Weil. “We were very disappointed with our back-to-school performance, but with competition being so strong and the economy being relatively soft, you have to hit all cylinders.”

Despite its reputation as a classic American clothier with broad appeal, American Eagle failed to stock up this season on enough staples like hooded sweat shirts and graphic T-shirts, one analyst said. The company found fashion denim in different washes didn’t sell as well as standard five-pocket boot-cut jeans. And company officials say its vintage-wear message simply wasn’t strong enough and failed to connect with the high school and college crowd.

“Everybody, including Wall Street, thought our merchandise was on track and fashion-right, and we were just very disappointed that the customer didn’t respond,” Weil said.

Sarah Masterson, 18, bought a cream angora sweater for $34.99 but says she and her friends all bypassed American Eagle T-shirts because they were too loose and frumpy. “It wasn’t as edgy,” she said.

American Eagle said it should have leveraged its name brand by using more logos on T-shirts and other apparel, although both Masterson and Davis said they valued style and comfort over brand. And although the retailer promotes affordable fashion – T-shirts start at $12.50 and jeans start at $29.50 – similar items can be found at Old Navy, Aeropostale and Hollister for slightly less. Abercrombie &Fitch owns Hollister.

“I think they’re going to have a lot of competition with Hollister. It’s more affordable than Abercrombie, and they have clothes like American Eagle and Abercrombie,” Masterson said.

American Eagle has been trying to correct its problems by presenting a more streamlined image in stores in order to compete in the crowded teen retail segment. The company is introducing a line of colorful sweaters and knits alongside corduroy blazers and pants that the company hopes will fit in with the current trend of combining preppy fashions with a more utilitarian look.

Truckers caps may be a hot-selling item among men, but denim remains a store staple and makes up 16 percent of sales, the most in the company’s 26-year history, said Judy Meehan, director of American Eagle’s investor relations.

Dawn Stoner, a specialty retailing analyst with Pacific Growth Equities, said that when sales began to slide this year, the company made last-minute changes with untested styles that didn’t resonate with the college crowd. She recommends concentrating on 20-year-olds.

“They have to settle down and focus on their customer profile and be unwavering and dedicated to that, not wavering between junior apparel, and follow it up with more mature offering,” Stoner said.

It doesn’t help that the current surf-and-skate trend is boosting sales at Pac Sun and Hot Topics, which carry popular labels like O’Neill and Hurley, Stoner said. Those retailers have the advantage of changing merchandise according to trends faster than one-label shops like American Eagle, which has to design, manufacture and distribute its own line, Stoner said.